Research Reports 371. Assessment of the Labour Market in Serbia. Vladimir Gligorov, Kosovka Ognjenović and Hermine Vidovic.

Transcription

1 Research Reports 371 May 2011 Vladimir Gligorov, Kosovka Ognjenović and Hermine Vidovic Assessment of the Labour Market in Serbia

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3 Vladimir Gligorov and Hermine Vidovic are Research Economists at the Vienna Institute for International Economic Studies (wiiw); Kosovka Ognjenović is a researcher at the Institute of Economic Sciences, Belgrade. This report was financed by and prepared for the use of the European Commission, Directorate- General for Employment, Social Affairs and Equal Opportunities (Contract no. VC/2009/0755). It does not necessarily represent the Commission's official position. Vladimir Gligorov, Kosovka Ognjenović and Hermine Vidovic Assessment of the Labour Market in Serbia

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5 Contents Acronyms Executive summary... i Introduction Analysis of the labour market The Serbian labour market overview Wage developments Informal economy Labour supply and demand mismatches and characteristics of unemployed: skills mismatch Vulnerable groups Regional disparities Migration Some effects of the crisis Conclusions Subsistence agriculture in Serbia Definition of the term Importance of subsistence agriculture Agriculture: a big employer Social buffering effects Agricultural exports supported by subsistence farmers Labour-intensive milk sector Subsistence farming fighting poverty Conclusions Labour market policies: an overview Institutional set-up Labour taxation Administrative capacities National Employment Service Conclusions Assessment of labour market policies Public spending on active and passive labour market policies Implementation of labour market policies Assessment of active labour market polices Vocational and educational training Conclusions Strategy of coordination with EU labour market policies Conclusion: assessment of policies and recommendations References Annex... 75

6 List of Tables, Figures and Boxes Table 1 Private sector share in GDP and private sector employment in Serbia... 3 Table 2 Share of economic sectors in total employment in Serbia... 4 Table 3 Educational attainment by gender and employment status, in %... 5 Table 4 Growth rates in %, Table 5 Characteristics of employment in the formal and informal economy, , %, population years Table 6 Registered unemployed, vacancies and employment by level of education Table 7 Unfilled vacancies as % of registered vacancies by district Table 8 Share of unemployed by district Table 9 Registered and filled vacancies by type of employment Table 10 Registered unemployed by level of education and gender, in % Table 11 Registered unemployed by duration of unemployment and gender, in % Table 12 Registered unemployed by age groups and gender, in % Table 13 Registered unemployed by age groups and gender, Table 14 Unemployed persons with disabilities by gender Table 15 Total filled vacancies and employment from the NES register Table 16 Total filled vacancies, vacancies filled by registered unemployed, realization of employment by gender Table 17 Employers' preferences for the recruitment of occupations by age, gender and education, in % Table 18 Unemployment by region Table 19 Long-term unemployment by region Table 20 Youth unemployment (15-24) by region Table 21 Population from South Eastern European countries in the EU-15 by sending country, numbers, and % of home-country population Table 22 Serbia: Indicators for agriculture, Table 23 Principal strategic documents and legal framework for employment issues Table 24 Public employment services key ratios Table 25 Public spending on active and passive measures as % of GDP Table 26 Expenditures on active and passive measures and NES administration, as % of total expenditures on labour market policies Table 27 Realization of ALM policies by year Table 28 Realization of ALM policies by category and year Table 29 Job search assistance, career guidance and counselling Table 30 Additional education and training Table 31 Development of entrepreneurship and employment programmes Table A1 Employment rates in South Eastern Europe Table A2 Youth employment rates in South Eastern Europe Table A3 Unemployment rates in South Eastern Europe Table A4 Youth unemployment rates in South Eastern Europe, in % of labour force Table A5 Economic activity rates in South Eastern Europe Table A6 Registered unemployed and vacancies by occupation groups Table A7 Registered unemployed and vacancies by occupation group, in % Table A8 Registered vacancies and employment by economic sector... 83

7 Table A9 Registered unemployed, registered vacancies and unfilled gap by district Table A10 Administrative unemployment rates by district Table A11 Serbia: Key economic indicators Table A12 Serbia: Key employment indicators, LFS based, average Table A13 Serbia: Employment by activities (LFS) in % Table A14 Serbia: GDP by economic activities, in % Figure 1 Evolution of employment rates, , employed in % of working-age population aged Figure 2 Employment rates of young people, , aged Figure 3 Structure of the employed by permanency of employment... 6 Figure 4 Unemployment in South Eastern Europe, unemployed in % of active population, average... 7 Figure 5 Difference between productivity growth and real growth by industries, in percentage points Figure 6 Importance of agriculture in the economy, Share of agriculture in total GDP, in % Figure 7 Importance of agriculture in the economy, Share of agriculture in total employment, in % Figure 8 Rural population, Share in % of total population Figure 9 Employment by organizational structure as % of total, end Figure 10 Educational structure of the NES staff Figure 11 Beneficiaries of unemployment benefits by categories (left scale) and share of beneficiaries in registered unemployed (right scale) Box 1.1 Programmes for youth... 9 Box 4.1 Unemployment insurance contribution scheme Box 4.2 Active labour market policies... 59

8 Acronyms ALMP BiH CEE EBRD ETF EC EU FBiH FIC FREN GDP HACCT IDP ILO IMF IPA IPARD LFS LSMS MoE MoERD MoSLP NACE NES NMS OECD PES PPP RSO SEE SNA Active labour market policies Bosnia and Herzegovina Central and Eastern Europe European Bank for Reconstruction and Development European Training Foundation European Community European Union Federation of Bosnia and Herzegovina Foreign Investors Council Foundation for the Advancement of Economics Gross Domestic Product Hazard Analysis and Critical Control point Internally displaced persons International Labour Organisation International Monetary Fund Instrument for Pre-Accession Assistance Instrument for Pre-Accession Assistance for Rural Development Labour Force Survey Living Standards Measurement Survey Ministry of Education Ministry of Economy and Regional Development Ministry of Labour and Social Policy Nomenclature Statistique des Activités économiques dans la Communauté européenne National Employment Service (Serbia) New EU member states Organisation for Economic Cooperation and Development Public employment service Purchasing Power Parity Republican Statistical Office South Eastern Europe Statistics of National Accounts

9 SPSI UAA UNCT UNDP USD VET WBC Social Protection and Social Inclusion Used Agricultural Area United Nations Country Team United Nations Development Programme US Dollar Vocational Education and Training Western Balkan countries

10 Executive summary Introduction In the period after the political changes in the year 2000, GDP growth was rather rapid and compares favourably with other transition countries in South Eastern Europe. It was driven mainly by the expansion of services, with industrial production and agriculture basically stagnating over the whole period. The labour market effects were similar to those in other countries going through transition: employment declined in the public sector and increased in the private sector, with the overall number of employed declining and those unemployed increasing, and also with strong increases in the number of pensioners. This trend started to change in the last couple of years, but the improvement was cut short by the crisis. Though GDP decline was not as strong as in many other countries, around 3% in 2009, industrial production and especially construction suffered significant losses. Since late 2009 there has been some stabilization, but GDP growth is still projected to reach only 1.5% this year and perhaps accelerate to 3% in The decline in employment according to LFS data was among the worst in the region (-7%) and continued in Employment is not expected to increase; indeed, further decline is expected in both the public and the private sectors in the short run. In addition, strong income effects were the consequence of a rather sharp devaluation at the beginning of the crisis and the continuing depreciation of the currency afterwards and the recent speed up of inflation (expected to reach double digits at the end of 2010 and remain elevated in the short run). Incomes, wages and pensions, are expected to stagnate, and most probably decline in real terms, in the short run as long as the labour market conditions do not improve. Thus, labour market challenges are rather formidable, especially because the sources of economic growth will have to change. In the medium term, significant restructuring will be needed in order to increase the share of the tradable sector in production and employment. Also, the structure of skills will have to change. On the other hand, relatively low growth rates as the economy adjusts will lead to rather tight labour market conditions. As a consequence, both labour market policies and the capacity to formulate and implement them will have to be improved and the whole agenda of structural reforms will have to be formulated and implemented. This will have to be done while concurrently pursuing a policy of budget consolidation and fiscal reforms, which will additionally tighten the labour market conditions. i

11 In this study we will examine the overall labour market developments, policies, and capacities to address problems. Problems and deficiencies will be identified and policy recommendations drawn. Characteristics of the labour market The Serbian labour market is characterized by low employment and activity rates, particularly for women and young people (Figure 1). This indicates the weaknesses of the secondary educational system in adapting to the needs of the labour market, but also the obsolete skills of the high percentage of long-term unemployed. In general, the educational attainments of the workforce have changed only marginally over recent years. The crisis had a strong impact on the Serbian labour market, which was reflected in rising unemployment and declining employment rates of young people in particular. At the same time, inactivity increased. The sectors most affected by the crisis were agriculture, trade, construction and manufacturing. The impact of the crisis was highest for workers with low and medium levels of education, while employment of the highly skilled continued to grow. Figure I Evolution of employment rates, employed in % of working-age population years 80 BA HR ME MK RS SI EU Source: National LFS. For Albania registration data. Young people are affected disproportionately by unemployment, with even those holding college or university degrees being hit hard. The apprenticeship programme First Chance launched by the government in 2009 in order to combat youth unemployment is showing first positive results: since mid-2009 the number of young people registered at labour offices has been on the decrease. ii

12 Other groups heavily affected by unemployment are internally displaced persons, ethnic minorities (Roma women in particular) and refugees. Regional disparities widened during transition. Central Serbia, where many jobs were lost in manufacturing in the course of restructuring, has been hardest hit by unemployment, exhibiting the highest share of long-term unemployment and heavily affected by youth unemployment, while the capital city of Belgrade is best positioned (Table 1). Table I Unemployment by region Year Central Serbia without Belgrade Belgrade Vojvodina Source: Own calculation based on RSO data, LFS Labour mobility, as everywhere in Europe, is very low in Serbia. By contrast, Serbia s (outward) migration is very high and remittances constitute an important share of income. Brain drain has become an important issue in recent years though it is hardly a new phenomenon. However, for highly educated people, the relevant labour market is the world labour market. Informal sector employment, which has been traditionally high in Serbia, even increased during the past decade, with a rising share of older workers, better educated persons with secondary education or more, self-employed persons and unpaid family workers. However, the current crisis has taken a toll on the employment in the informal sector too. There has been a marked decline in the number of self-employed persons, which is where most informally employed people are to be found. There is no reliable information on the effects on other types of informal activities, but chances are that those have been hit by the crisis too as they are even more dependent on the developments in the formal economy. By contrast, some reversal in the relationship between wages and productivity should have taken place. In the pre-crisis years, wages started to increase faster than productivity especially in the public sector. The crisis changed that as employment declined stronger than economic activity and wages stagnated or even declined in real terms. That has led to an improvement in overall competitiveness of the economy and of the labour intensive industries and services too. This should have positive effects on the labour market developments once recovery strengthens and investments increase. iii

13 Labour market policies Serbia has not relied on consistent labour market policies to address the low level of employment and high level of unemployment. Some changes are being introduced in the crisis and post crisis periods, but the effects are uncertain and are yet to be determined in any case. Although spending on passive and active labour market policy measures in Serbia has been growing in the past couple of years, it is still low compared to the EU average but higher than in most other Western Balkan countries. The lion s share of the available budget is spent on passive measures. Table II Public spending on active and passive measures as % of the GDP ¹ 2010¹ Active measures ² Unemployment benefits, gross ² Passive measures, gross ² Labour market policies, total ² 1) Shares of active policies in the GDP are calculated according to GDP forecasts for 2009 and 2010 (Government of the Republic of Serbia, Ministry of Finance, 2010). 2) Own calculation based on the NES plan of expenditures on labour market measures for 2010 (National Employment Service Informer, March 2010). Source: Own calculations based on NES data, Business Reports The coverage of unemployment benefit recipients is very low (11%) because of the high percentage of long-term unemployed as well as young first-time job seekers who are not entitled to unemployment benefits. In general, due to budgetary reasons, there is a delay of about 4 months before payment of unemployment benefits begins. Today, benefit recipients are mainly those who have lost their jobs due to the termination of their contracts, while at the beginning of the new millennium the major part of recipients was accounted for by those who became jobless in the course of privatization and restructuring. Participation in active labour market programmes (ALMP) has increased over time and also the realization of planned policy measures has significantly improved. This means that the average job placement rate six months after participation in a particular measure or programme is one third for all observed measures and programmes, but differs widely across them: e.g. the job placement rate is ranging between 70% for programmes of self employment and 36% for the financial support of apprentices. Further planning of the implementation of active labour market measures would be ameliorated by the development of a system of monitoring and evaluation that would enable net impact assessment of active labour market measures. Females are overrepresented in the programmes of addi- iv

14 tional education and training, while men account for a higher share than women in the programmes supporting entrepreneurship and providing subsidies for the creation of new jobs. An important step in order to improve the efficiency of labour market policy measures was made in 2007, when the administration of health insurance was separated from the NES which absorbed much time and efforts in the past. In 2010, the priorities of the labour market policy in Serbia were determined by the National Action Plan for The labour market policy for 2010 rests on three main pillars: (i) new job openings, decreasing the effects of the economic crisis on current jobs and increasing formal employment; (ii) improvement of social inclusion and equal access to the labour market; and (iii) development of human resources. Within the first group of policy priorities, emphasis was given to the fostering of employment and the prevention of unemployment, the employment of young people, strengthening the capacities of the labour market institutions, the role of social partners and regional collaboration of countries, and supporting the reduction of regional differences. Within the second group of priorities, two subsets of policies were distinguished through the implementation of support measures to achieve the equal status of women and men on the labour market on the one hand and social inclusion and employment of persons with disabilities and other vulnerable groups (refugees and IDPs, minorities, beneficiaries of social assistance and the like) on the other hand. The third set of policies entitled development of human resources incorporated the organization training programmes for the unemployed in order to fill short-term labour market needs, the promotion of LLL, the enhancement of institutional capacities and the like. The priorities of labour market policy for 2010 were implemented in concrete labour market measures supported by a budget of about RSD 10 billion (MoERD, 2010). Besides policies envisaged to foster the employment of young people and persons with disabilities, there are policies that make the equality of genders a priority, that is, with the objective of having women constitute at least half of the users of active labour market measures. Direct support for the higher employment of women is provided by fostering women s entrepreneurship and self-employment, fostering unemployed women who are in the category of women with difficulties in finding employment (such as young women, uneducated women, women with disabilities, Roma women, women victims of trafficking and the like) and by promoting flexible forms of employment that will facilitate the harmonization of business and family life (time sharing between job and family obligations) and creating possibilities for better social inclusion of unemployed women. Implementation of these poli- v

15 cies will be continued in 2011 as well (MoERD, National AP of Employment for 2011, 2010). In 2011 the Serbian government will introduce the new Employment Strategy for the period The priorities set in the draft strategy include supporting the model of new economic growth of the national economy, supporting the labour force in the economic sectors with unfavourable perspectives, increasing the employability of vulnerable groups and strengthening the institutional framework in order to decrease differences in the labour market indicators between Serbia and EU. The new strategy particularly emphasizes the implementation of active labour market policies, as opposed to passive policies, through higher expenditures for active labour market measures, better targeting of potential beneficiaries and the fostering of programmes of additional education and training. Parallel to the strengthening of active labour market policies, emphasis will be given to education in order to improve the labour force supply. This is particularly important because of the forecasted decrease in the labour force until the end of 2020 The government has announced a ten-year plan, Serbia 2020, which is to be closely connected with the EU programme Europe Within that framework, structural reforms will be considered which are to be coordinated with the EU as the accession process progresses. The proposed programme, which was recently released, calls for significant growth in employment over the next decade an additional 400,000 new jobs are to be created. This is presumed mainly on the basis of strong GDP growth fuelled by growing investments and exports. Although the programme assumes a speed-up in the process of EU integration, it is not all that specific when it comes to labour market policies. Important reforms of the tax code are envisaged, mainly with the aim of reducing the tax burden on labour. There are calls for pension reforms and education reforms. Also, active labour market policies are to be relied on more than before. The programme lacks specifics and thus could benefit from policy dialogue with the EU in order to elaborate a more strategic approach to labour market policies. Assessment of policies and recommendations The overall developments on the Serbian labour market are not substantially different from the pattern observed in most transition countries and especially those in the Balkans. Most employment and unemployment problems are structural rather than cyclical. Low level of employment, high level of unemployment, especially among the young and the old, and high rate of inactivity are all connected with the structural changes in the economy that is connected with the transition from mainly public to private sector employment and with the rising emphasis on productivity and efficiency. Labour market policies adopted and followed during the process of transition, however, were mostly designed as if labour market problems were cyclical rather than structural. vi

16 That accounts for the prevalence of passive as compared to active labour market policies. Even the passive measures were inadequate because they consisted in large part of early retirement and of unemployment and some social benefits. The benign view of the expansion of informal economy can also be seen as a type of a passive labour market policy as it amounted to a type of employment subsidy to those that were self-employed or were partly formally and partly informally employed (part of the wages being reported and part being paid in cash). Even these passive labour market polices have not been all that generous, with the exception of early retirement. The latter has created a huge problem in the pension fund and has distorted the labour market and the incentives for work significantly. Increasingly this is emerging as a looming social problem and also as a problem for fiscal policies and more specifically for policies of taxation. The government is contemplating a tax reform that should rebalance the tax burden on labour with that on consumption. This tax reform has been put on hold for the moment because of the possible short term negative effects it might have on consumption and on fiscal balances in the aftermath of the crisis. However, there is recognition that the tax wedge on labour is having a negative effect on both wages and on employment. The problem is that the possibilities to reduce public expenditures are limited without significant reform of the pension system. As a consequence, the eventual effects of the tax reform are most probably going to be rather limited in the short run. Though labour market problems are mostly structural, some of the effects of the current crisis are clearly cyclical. The government has made an effort to support aggregate demand with increased deficit spending, but the possibilities are limited. Also, some of the programmes for increased infrastructure investments have been slow in implementation. Therefore, strong decline in employment, especially in construction and in services, have not been addressed properly. In the short run, fiscal adjustment and consolidation is going to be necessary, so there are significant limitation to relying on countercyclical policies with the aim to supporting employment generation. Similarly, some attempt has been made to subsidize employment of the young and also to prevent further lay-offs, but this are temporary programmes and cannot be seen as providing for sustained improvement in the labour market conditions. In the same way the existing programmes that subsidize foreign investments with wages paid from the budget cannot be expected to lead to significant improvements in the bleak labour market picture. In general, countercyclical labour market policies have mainly been limited in scope and though in some cases temporarily successful those have not changed the overall picture of the labour market structure and development. vii

17 Current programmes for future labour market policies clearly recognize the structural character of the low employment and high unemployment and inactivity picture. There is a general shift towards active labour market policies and also towards a strategy of development that combines these policies with various structural reforms not only in the labour markets but in the product markets and in education and other areas. These programmes are well designed in general. They are, however, strong on aims and rather weak on instruments. In other words, the recognition of what should be done is rather clear, but that cannot be claimed when it comes to the question on how that should be done? There is an emphasis on the reform of education in order to improve the supply of skills and meet the expected increased demand for employment in industry and in the tradable sector in general. In addition, there is some emphasis on higher investments in science and innovation as the current resources devoted on those are extremely limited. It is, however, not clear where the money will come from and also how are the necessary reforms to be implemented. In the current state of affairs, more investment in skills is like more investment in brain drain. There is also an emphasis on retraining, but it is not altogether clear how that is to be organized and what are the incentives for participation in these programmes. The experience so far, albeit admittedly a limited one, is not altogether encouraging. Public programmes for training and retraining are not all that efficient while there has been limited public-private partnership in this respect. The major incentive for people to participate in these programmes is the anticipation of employment once the programme is completed successfully. Thus, it might be a good idea to support programmes of training or retraining on the job run by the entrepreneurs looking for specific skills. That would help both the discovery of skills needed and the matching problem between labour demand and supply. Such programmes are also conducive to positive discrimination schemes, i.e. to support for the activation of vulnerable or disadvantaged groups. Given that these is a significant problem in a depressed labour market, active labour market policies exercised and implement through the cooperation between the state institutions and the private sector could target the improvement of employment prospects for various groups that are discriminated against by the markets or by the predominant social structures. These considerations lead to the assessment of the needed reforms in the institutional set up both in the government and in the administration. There are a number of deficiencies in the current set up. Three may be the more important ones. First, there is too much dispersion between various ministries when it comes to labour market policies both in terms of setting up the policies and in their implementation. This is the consequence of politics rather than policy. Given that the state of the labour market is viii

18 of critical importance for development and stability, it would be better to have one strong ministry for labour and employment policies with enough capacity to set up and implement policies targeting all aspects of labour market problems. Second, there is a need to strengthen the National Employment Service and various other supporting agencies. If active labour market policies should strengthen, the implementing institutions should be capable of facilitating the search and matching problem. That would require a significant improvement in their capacities and responsibilities. They should be entrusted to look for innovative solutions to various active labour market schemes and programmes. Third, there is a need to increase both the staff and the budget of the institutions designing and implementing various labour market policies and programmes. As the main labour market problems are structural, the policies that address them need to be coordinated with other structural reforms in the area of education, pension reform, product market reforms, and overall industrial policy. This requires a better staff and better financing. For labour policy to be more active, the activities of the facilitating institutions have to be increased. Conclusion Transition and the current crisis have led to the development of significant structural problems in the labour markets in Serbia. The policies so far have been inadequate as they have been targeting cyclical rather than structural problems. This needs to be changed in the future with significant improvements in the policy design and the institutional support for implementation. Keywords: labour market, wage developments, skill mismatch, informal economy, labour market policies JEL classification: J08, J21, J24, J31, J43, J64 ix

19 Vladimir Gligorov, Kosovka Ognjenović and Hermine Vidovic Assessment of the labour market in Serbia Introduction In the period after the political changes in the year 2000, GDP growth was rather rapid and compares favourably with other transition countries in South Eastern Europe. It was driven mainly by the expansion of services, with industrial production and agriculture basically stagnating over the whole period. The labour market effects were similar to those in other countries going through transition: employment declined in the public sector and increased in the private sector, with the overall number of employed declining and those unemployed increasing, and also with strong increases in the number of pensioners. This trend started to change in the last couple of years, but the improvement was cut short by the crisis. Though GDP decline was not as strong as in many other countries, around 3% in 2009, industrial production and especially construction suffered significant losses. Since late 2009 there has been some stabilization, but GDP growth is still projected to reach only 1.5% this year and perhaps accelerate to 3% in The decline in employment according to LFS data was among the worst in the region (-7%) and continued in Employment is not expected to increase; indeed, further decline is expected in both the public and the private sectors in the short run. In addition, strong income effects were the consequence of a rather sharp devaluation at the beginning of the crisis and the continuing depreciation of the currency afterwards. Thus, labour market challenges are rather formidable, especially because the sources of economic growth will have to change. In the medium term, significant restructuring will be needed in order to increase the share of the tradable sector in production and employment. Also, the structure of skills will have to change. On the other hand, relatively low growth rates as the economy adjusts will lead to rather tight labour market conditions. As a consequence, both labour market policies and the capacity to formulate and implement them will have to be improved and the whole agenda of structural reforms will have to be formulated and implemented. This will have to be done while concurrently pursuing a policy of budget consolidation and fiscal reforms, which will additionally tighten the labour market conditions. In this study we will examine the overall labour market developments, policies, and capacities to address problems. Problems and deficiencies will be identified and policy recommendations drawn. Data limitations may, however, impede the analysis of the Serbian labour market and the outcome may be controversial in some cases depending on the data sources used. 1

20 1 Analysis of the labour market 1.1 The Serbian labour market overview Employment Despite significant GDP growth during most of the last decade, after the start of transition, employment, according to Labour Force Survey (LFS) data, fell by 15% or 477,000 persons between 2000 and The decline was mainly a result of restructuring of the socially-owned sectors. The labour market in Serbia is characterized by low employment and activity rates. The employment rate of 50.8% in 2009 is significantly below the EU-15 average, but also below the rates of Croatia and those of the EU members Bulgaria, Romania and Slovenia (Figure 1). Low female employment is one of the factors that impinge markedly on the overall employment rate. For this and other detailed labour market indicators see the tables in the Annex. Figure 1 Evolution of employment rates, employed in % of working-age population aged BA HR ME MK RS SI EU Source: National LFS. For Albania registration data. For young people aged 15-24, the employment rate was only 16.8% in 2009, suffering a substantial drop compared to a year earlier as a result of the economic crisis, which affected young people in particular (Figure 2 gives comparative data for other countries in the region and for the EU). Most of the young people face problems in the school-to-work transition. Only some of them find a permanent job while a significant part remains trapped in temporary and low paid jobs from which they find it difficult to exit (Arandarenko and Krstic, 2008). The activity rate of 60.6% in 2009 is also significantly lower than the EU-15 average (Annex Table A5) and only higher than in Bosnia and Herzegovina, Montenegro and Kosovo 2

21 under UNSCR 1244/99. Taking the breaks in time series into account, activity rates shrank quite substantially between 2000 and 2009, while employment rates hovered around 50% (with the exception of the period). Figure 2 Employment rates of young people, aged Source: Eurostat. National LFS. The private sector share of GDP has been steadily on the increase over the past few years and accounted for about 60% in A large part of this share is generated by agricul- ownership structure of the industrial and services sectors also contributed to the rising pri- ture, which contributes about one fifth of the country s GDP. Additionally, the changed vate sector (Table 1). Table 1 Private sector share in GDP and private sector employment in Serbia Private sector share in GDP, in %¹ n.a. n.a. n.a Private sector share in employment, without family workers, in %² 49.9 Men 55.1 Women Private sector share in employment, with family workers, in %² 57.1 Men 58.4 Women ) EBRD (2009), Transition Report 2009, p ) Population aged 15 years and over. Source: RSO, LFS

22 Between 2004 and 2009 there was a significant shift to the private sector in total employment (Table 2). Excluding family workers who are mainly engaged in agriculture, the percentage of employed persons in the private sector increased by more than 10 percentage points. This trend was driven by faster-growing male employment in the private sector. If family workers are included, the private sector share in total employment reached 70%, with the share of men significantly higher than that of women. Table 2 Share of economic sectors in total employment in Serbia¹ ) Agriculture Men Women Industry and Construction Men Women Services Men Women ) Population aged 15 years and over. Source: RSO, LFS Over the period , the services sector recorded a rising share in total employment, absorbing more than half of the Serbian workforce. At the same time, employment in the two other sectors decreased slightly, so that industry and construction and agriculture account for almost the same percentages of total employment. The women s share in the services sector has been growing over time and is traditionally higher than that of men whose share stagnated or even decreased between 2004 and On the other hand, in industry and construction, the employment share of men is much higher than that of women. Up to the year 2007, the employment rates of both men and women recorded an increase, while in 2008 and 2009 employment rates slowly dropped. Opposite movements are perceivable in agriculture. Until 2007, employment of men and women in agriculture was on the decline, but increased again rapidly in While male employment in agriculture continued to increase in 2009, a portion of the women previously engaged in agriculture moved to the services sector. The educational attainment of the labour force in Serbia, Table 3, remained at almost the same level over the observed period. According to LFS data, in 2004 the share of em- 1 The exceptional increase in agricultural employment likely results from a significant methodological change in the Labour Force Survey in 2008: first, there was an expansion of the sample size, and second, since 2008 the LFS has been carried out biannually; previously it was conducted annually. 4

23 ployed persons with higher education was 18.6%, secondary education holders accounted for 58% and the remainder of 23.4% consisted of low-skilled labour. In 2009, some shifts occurred in the shares of skilled and unskilled labour: namely, new firms/employers and a general shift towards the services sector demanded skilled and well-educated employees. The share of employed persons with higher education increased to 20.4% and that of those with secondary education to 58.7%, while the share of employed persons with low educational attainment fell to 20.9%. Still, more than one fifth of unskilled employees work mainly in agriculture or are self-employed. Table 3 Educational attainment by gender and employment status¹ ), in % No school Educational attainment Incomplete primary school Primary Secondary College University and more Employed Men Women Unemployed Men Women Employed Men Women Unemployed Men Women Employed Men Women Unemployed Men Women Employed Men Women Unemployed Men Women Employed Men Women Unemployed Men Women Employed Men Women Unemployed Men Women ) Population aged years. Source: RSO; LFS

24 Women account for a higher percentage than men among employed persons with college and university education. According to the 2009 LFS data, one quarter of employed women have college and university education, but only 16.6% of employed men. At the same time, among employed women there is a higher percentage of low-skilled workers with primary education or less (21.2%); the respective share for men is 20.7%. With re- for spect to the total labour force, both men and women with secondary education account a significant share both in employment and unemployment. That implies a significant skills mismatch on the labour market. The percentage of unemployed men with secondary edu- cation decreasedd slightly during the observed period from 69..7% to 65.2% %, while the per- centage of unemployed women increased from 65% to almost 72%. The findings of the OECD report on the investment climate in SEE (OECD, 2010) pointed to a significant gap between skills provided through the education system and additional training and the needs of the labour market. The underdeveloped VET system and slow reforms of the education system in general are the main obstacles to the increased supply of skills demanded by employers. Figure 3 Structure of the employed by permanency of employment Source: RSO The global crisiss of had a greater effect on the fall of vacancies than on the increase of permanent employment. In particular, temporary employment increased from 7.1% to 8.2%, while other forms of employment (seasonal and casual employment) were severely cut (Figure 3 above). The structures of permanent employment for men and women are different. Among employed women, those with a permanent contract account 6

25 for 90%, compared to 88% for men. 2 On the other hand, men often accept seasonal and occasional jobs. Unemployment Unemployment has been a serious problem in Serbia for decades. Unlike the situation in other transition countries, where unemployment did not exist under socialism by definition, Serbia, like most of the successor states of former Yugoslavia, entered transition with a considerable level of unemployment (1990: 17%). After a decade of near standstill (armed conflicts and international sanctions), unemployment increased remarkably between 2000 and 2005/2006 as a consequence of the introduction of market-oriented reforms. In 2006 the unemployment rate reached 21%, then fell to 13.5% in 2008, but rose again thereafter, reaching 19.6% in April Over the period 2000 to 2010 (April), the number of unemployed grew by 147,800 persons. From a comparative perspective, the unemployment rate in Serbia is significantly higher than in the EU-15 or in Bulgaria, Romania and Slovenia, but lower than in Macedonia, Montenegro and Bosnia and Herzegovina (Figure 4). In general, women are more likely to be unemployed than men, despite their better educational levels. Figure 4 Unemployment in South Eastern Europe unemployed in % of active population, average HR BA MK RS ME BG RO SI Source: LFS of the respective countries. Albania: registration data. The educational structure of the unemployed is as unfavourable as that of the employed. In 2004, 22% of the unemployed in Serbia had only primary education or no formal education at all. Unemployed with secondary education accounted for 67.2% of the total unemployed, while those with college and university degrees made up 10.8%. The situation became even worse in 2009, when the share of people with secondary education increased to 2 Within the period from 2004 to 2006, the share of permanent employment increased in total and by gender. While permanent employment was favoured by women, other forms of contracts were not so popular among women (Ognjenovic 2008). 7

26 68.6%. The share of those with college and university education remained unchanged as compared with 2004, while the portion of unemployed persons with primary or no education fell to 20.6%. 3 Unemployment of individuals with secondary education has been persistent on the Serbian labour market. Two main reasons could explain this situation. First, the system of secondary education does not produce occupations and skills that will meet labour market needs, and second, the long-term unemployed in particular have obsolete skills that are not in demand. This potential labour force needs to be further retrained in order to meet the requirements of potential employers. To overcome the persistent unemployment of persons with secondary education, the overall economic policies and education policies need to be linked more adequately. This problem could be resolved by forecasting the labour market needs. The results of forecasting may provide good insights for adjustment of both the education policy and the employment policy. Unemployment hits young people disproportionately; the unemployment rate among people younger than 25 is more than twice as high as the overall unemployment rate. The highest incidence of unemployment in 2009 was observed among those with no education as well as among young people holding college degrees. Even for those with a university degree, the unemployment rate was almost 31%. There seem to be at least two factors responsible for the high unemployment rates among well-educated young people: first, the skills mismatch the skills offered do not meet the requirements of the employers and second, the probability of wage reservations, since wages offered are considered unsatisfactory (MoERD, 2009). The lack of work opportunities and strong regional disparities are the main reasons for young people to migrate either internally or abroad. Surveys carried out among young people in the period show that between 18% and 23% of young people are planning to move in order to improve their employment prospects (MoERD, 2009). In 2004, the LFS unemployment rate of young people (aged 15-24) was extremely high, namely 48.1%. The amelioration of the school enrolment rates of young people contributed to slowing down youth unemployment on the one hand, and on the other hand public policies oriented towards increasing youth activity and employment contributed to decreasing youth unemployment as well. The LFS records show a decrease in youth unemployment from 43.7% in 2007 to 41.6% in Not only high unemployment was a problem for young people, but also the quality of employment. At the same time, the rate of informal employment for youth jumped from 41% in 2002 to 50% in 2007 (Krstic and Corbanese, 2009). 3 However, there are significant differences in the percentages of unemployed by educational attainment if measured by registration data. Accordingly, persons with low education levels accounted for 36% of the total unemployed in 2004 and for 35.1% in 2009, those with secondary education accounted for 56% and 54.1%, respectively, and persons with higher education made up 8.1% and 10.8%, respectively, of the total unemployed in those two years. 8

27 The problem of the unfavourable position of young people in the Serbian labour market was recognized by the authorities and policies were developed and implemented in order to moderate it. Besides the annual policies planned and implemented through the National Action Plans for current years (three such APs were introduced for 2009, 2010 and 2011), the ministry in charge of employment adopted the National Action Plan of Youth Employment for the period as well. In order to tackle the high youth unemployment, in 2009 the MoERD introduced the apprenticeship programme First Chance, which subsidized employment of youth (below 30 years of age), see Box 1.1. Box 1.1 Programmes for youth The programme First Chance was created to support 3-month voluntary apprenticeships and 12- month periods of employment of young people with various levels of education through wage subsidies with included obligatory social contributions. The only obligation of employers was to pay wage taxes according to the law. In 2009, 9,577 apprentices in Serbia and another 7,573 in Vojvodina province were hired through this programme. The programme continued in 2010 for 10,000 new apprentices. The employers who employed the 10,000 young people in 2010 have an obligation to keep those apprentices on the job for another 12 months after the period of receiving the state subsidy comes to an end. RSD 1.3 billion were spent on this programme in 2009, and RSD 1.8 billion were budgeted for the programme in The programme will be continued in 2011 as well; the MoERD plans to double the employment of new apprentices (MoERD, 2010). In order to support youth employment, two projects partially financed by donors are in place as well. The project Youth, Employment and Migration is supported by the Spanish government to the tune of USD 6.1 million and additionally by the Serbian government in the amount of USD 1.9 million, in order to provide employment opportunities for young people under 30 years of age with uncompleted secondary education, young persons with disabilities with no education, returnees in the process of readmission and other recipients of welfare support. The period of implementation of the programme is from May 2009 to November The second programme, Employment Promotion of Youth, in the value of USD 1.47 million, was foreseen to be implemented from July 2009 to the end of The programme is supported by the Open Society Fund (USD 0.57 million), the Italian government (USD 0.45 million) and the Serbian government (USD 0.45 million). The target groups that will benefit from this programme are young people under 30 years of age with uncompleted secondary education, young persons with disabilities with no education, and middle-aged unemployed women (30-45 years old). The aim of these programmes is to reintegrate these vulnerable groups into the local labour markets. The two programmes directly support the implementation of the National Action Plan of Youth Employment for the period The number of young people registered as unemployed by the NES indicates a certain positive impact of the programme on the employment of apprentices: At the end of October 2010, 100,584 unemployed persons below 24 years of age were recorded by the NES, which was 1.1% less that at the end of At the same time, the number of young unemployed women decreased by the same percentage and at the end of October was 49,794. In October 2010, compared to the end of 2009, the number of registered unemployed persons under 30 years of age was lower by 0.18% (195,225) and for young women alone it was lower by 0.52% (104,159). 9